Remote Working: Tax Friend or Foe?

COVID-19 has certainly accelerated many shifts for businesses and employees, most notably remote working. Since many employees were forced to work from home due to government mandates or CDC recommendations, employees were able to show that they could work just as effectively as in the office, forcing many employers to reconsider policies and envision a beneficial arrangement for both parties.

While working from home offers numerous benefits for employees, there are municipal tax consequences for employers. Specifically, employers are required to withhold payroll taxes from wages based on where an employee is working, which also creates nexus at that location.

Nexus

Nexus defines the level of connection between a taxing jurisdiction, such as a state, and an entity, such as your business. In 2020 and 2021, the Ohio Legislature passed HB 197 and 110 to provide relief to businesses on this requirement, allowing employers, for withholding and nexus purposes only, to ‘pretend’ their workers were still working at their principal place of work. Those legislative fixes ran out at the end of 2021, and it appears unlikely there will be action from the Legislature in 2022.

Remote working has three primary areas that are affected: Payroll withholding, income tax filing requirements and refunds, each outlined below.

City Incentives

One additional effect on the shift to remote work is its effect on city incentives. If an employer has an incentive with a city, one common requirement is a minimum number of employees guaranteed to work in the city. That incentive can be in jeopardy due to remote employees not working in the city as promised. It is vital an employer has prompt communication and renegotiation with the city to maintain those benefits.

Contact your BMF Advisor to discuss how your tax situation may be affected by remote working.